Australia retailers suffer worst sales decline in August since early 2013

[SYDNEY] Australian retailers suffered their worst decline in sales since early 2013 in August as debt-laden consumers tightened their purse strings, cutting back sharply on food, furniture and clothing, an outcome that bodes poorly for third-quarter economic growth.

Thursday's data from the Australian Bureau of Statistics (ABS) showed retail sales dropped 0.6 per cent in August, confounding expectations for a 0.3 per cent increase. July was also revised down to show a 0.2 per cent fall.

The 0.8 per cent slump in July and August is the biggest back-to-back fall since October 2010.

In response, the Australian dollar skidded 0.4 per cent to US$0.7829, down from a one-week high of US$0.7875 set on Wednesday.

Australia's retail sector had shown some signs of life earlier in the year, but that recovery was short-lived as sluggish wages and household incomes sapped spending power.

The data casts a shadow on the Reserve Bank of Australia's (RBA) forecasts for the A$1.7 trillion (S$1.8 trillion) economy to accelerate at 3 per cent over the next two years.

The RBA has long feared ballooning debt in Australia's red-hot property sector was pinching consumers' ability to spend elsewhere in the economy.

"On the face of it, this is not good news for third quarter GDP (gross domestic product) growth," said Michael Workman, a senior economist at CBA.

The sector takes in over A$300 billion annually and is the second-biggest employer after healthcare.

"Though, it should be noted that a fall in sales this broad is very strange," he added. "We aren't hearing anything like this sort of weakness from our clients, and people are still spending on cars and services. It's just very odd."

The ABS figures showed falls across every single state, a vanishingly rare occurrence, with food, eating out and household goods leading the losses. Department stores did gain 0.7 per cent, but that followed a sharp drop of 2.6 per cent in July.

Indeed, Australia's biggest department store operator Myer this month posted its lowest annual profit since listing with sales down 2.7 per cent for the year to July 29.

Not all is doom and gloom. The ABS's experimental estimates of online retail turnover jumped 6.3 per cent in August and were rapidly catching up to last year's Christmas sales.

The online numbers are not yet included in the headline retail series.

A separate ABS survey of household spending this week showed Australians are shelling out more money on holidays, health insurance and school fees - none of which are reflected in the retail sales numbers.

The RBA has held policy rates at an all-time low 1.5 per cent after last easing in August 2016 as it balances tepid inflation and slow wages growth against record high household debt.

There was slightly better news on the country's trade surplus which widened to US$989 million in August, topping market forecasts of US$875 million.

The weakness in retail was mirrored in the numbers with imports of consumer goods dropping 4 per cent in the month.

Exports rose 0.5 per cent thanks largely to a 10 per cent rebound in iron ore, the single biggest earner, which helped offset falls in coal and gold.

REUTERS